THE COMMISSIONER OF INCOME vs. N. RAGHUNATH

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TCA/863/2017HC Madras28 August 2020Bench: HONOURABLE DR.JUSTICE VINEET KOTHARI5 pages
AI SummaryWithdrawn

What did the High Court hold?

The High Court dismissed the appeal filed by the Revenue. The dismissal was based on the Circular issued by the Central Board of Direct Taxes (CBDT) vide Circular No.17/2019 dated 8 August 2019. This circular stipulates that appeals shall not be filed or pursued by the Department before the High Court if the tax effect does not exceed Rs.1,00,00,000/- (Rupees One Crore). The Court noted that in the instant case, the tax effect was less than the monetary limit imposed by the CBDT. Consequently, the appeal was dismissed as withdrawn, with the substantial questions of law left open for determination in appropriate cases. No costs were awarded. The CMP filed to dispense with the production of the certified copy of the ITAT order was ordered.

What were the facts?

The Commissioner of Income Tax (Revenue) filed a Tax Case Appeal before the High Court of Judicature at Madras against an order dated 07.03.2017 passed by the Income Tax Appellate Tribunal (ITAT), Madras 'A' Bench. The appeal concerned assessment year(s) not specified in the judgment. The dispute revolved around the classification of expenditure incurred by the assessee, Mr. N. Raghunath, on interior decoration and temporary wooden structures in leased premises. The ITAT had held such expenditure to be revenue in nature. The Revenue challenged this finding, raising substantial questions of law regarding whether the expenditure, providing enduring benefit, was capital in nature, and whether the assessee's claim of 100% depreciation on temporary partitions was justified despite claiming only 10% in its books.

What were the issues?

The Tribunal had to decide the following substantial questions of law: 1. Whether the Tribunal was correct in holding that large sums of money incurred towards interior decoration, which provided enduring benefit, constituted revenue expenditure, as per Section 37 of the Income Tax Act, 1961. 2. Whether the Tribunal's finding was flawed because the assessee claimed 100% depreciation for income-tax purposes on temporary partitions, while only claiming 10% depreciation in its books of accounts, indicating differential treatment. 3. Whether the Tribunal's reasoning and finding that expenditure incurred on temporary wooden structures were allowable as revenue expenditure and not capital expenditure was proper. 4. Whether the Tribunal should have applied the decision of the Apex Court in CIT Vs. Mangayarkarasi Mills, particularly concerning huge expenditure incurred on leased premises resulting in enduring benefit, classifying it as capital in nature. Assessee's Contentions: Not recorded in the judgment. Revenue's Contentions: The Revenue argued that the expenditure on interior decoration and temporary structures, providing enduring benefit, was capital in nature. They also contended that the assessee's differential treatment of depreciation claims for temporary partitions was incorrect. The Revenue relied on the Supreme Court decision in CIT Vs. Mangayarkarasi Mills.

Which sections of the Income-tax Act were involved?

Section 37,Section 260-A

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, Madras A

Order dt.28.8.2020 in TCA.No.863/2017 [CIT - Vs. - N.Raghunath] IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 28.08.2020 CORAM THE HONOURABLE DR.JUSTICE VINEET KOTHARI & THE HONOURABLE MR.JUSTICE KRISHNAN RAMASAMY

T.C.A.No.863 of 2017 & C.M.P.No.21429 of 2017 The Commissioner of Income Tax, Chennai ... Appellant Vs Mr. N. Raghunath, New No.19, Old No.9, Judge Jambulingam Street, Mylapore, Chennai 600 004. PAN No: ACCPR4059E

... Respondent Prayer: Tax Case Appeal filed under Section 260-A of the Income Tax Act, 1961, against the order of the Income Tax Appellate Tribunal, Madras 'A' Bench, dated 07.03.2017 in I.T.A.No.3224/Mds/2016.

For Appellant : Mr.T. Ravikumar Sr. Standing counsel

For Respondent : Mr.R.Kumar

1/5 http://www.judis.nic.in Order dt.28.8.2020 in TCA.No.863/2017 [CIT - Vs. - N.Raghunath] O R D E R (Delivered by Dr.Vineet Kothari, J.) The Court was held by Video Conference, as per the Resolution of the Full Court dated 3 July 2020, by Judges at their respective residences and the counsel, staff of the Court appearing from their respective residences. 2. This Tax Case Appeal has been filed by the Revenue, calling in question the correctness of the order passed by the Income Tax Appellate Tribunal, Madras “A' Bench by raising the following substantial questions of law: '1. Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the large sums of money incurred towards interior decoration which give to a enduring benefit to the assessee are revenue expenditure? 2. Is not the finding of the Tribunal bad since the assessee in its books of accounts maintained had claimed only 10% depreciation but however, for the purpose of income-tax had claimed 100% depreciation on temporary partition adopting differential treatment which is not correct? 3. Whether the reasoning and finding of the Tribunal is proper in holding that the expenditure 2/5 http://www.judis.nic.in Order dt.28.8.2020 in TCA.No.863/2017 [CIT - Vs. - N.Raghunath] incurred on temporary wooden structure are allowable as revenue expenditure and not capital? 4. Should not the Tribunal apply the decision of the Apex Court in the case of CIT Vs Mangayarkarasi Mills reported in 315 ITR page 114 especially when huge expenditure were incurred by the Assessee on leased premises which has resulted in enduring benefit and therefore capital nature?' 3. When the matter is taken up for hearing, learned Standing Counsel brought to our notice the Circular issued by the Central Board of Direct Taxes vide Circular No.17/2019 dated 8 August 2019, wherein, it is stipulated that appeals shall not be filed/pursued by the Department before the High Court in cases where the tax effect does not exceed Rs.1,00,00,000/- (Rupees One Crore). 4. In the instant case, the tax effect is said to be less than the monetary limit imposed and therefore, the Appeal filed by the Revenue is dismissed as withdrawn, keeping open the substantial questions of law for determination in appropriate cases. No costs. C.M.P.No.21429 of 2017 filed to dispense with the production of the certified copy of the order passed by the Income Tax Appellate Tribunal in ITA NO.3224/Mds/2016, dated 07.06.2017 is ordered. 3/5 http://www.judis.nic.in Order dt.28.8.2020 in TCA.No.863/2017 [CIT - Vs. - N.Raghunath] 5. Registry is directed to send a copy of the judgment to the Respondent/Assessee in the address given in the Appeal.

[V.K.,J.] [K.R.,J.] 28.08.2020 msr Index:yes/no Internet:yes/no 4/5 http://www.judis.nic.in Order dt.28.8.2020 in TCA.No.863/2017 [CIT - Vs. - N.Raghunath] DR. VINEET KOTHARI, J. & KRISHNAN RAMASAMY,J.

Msr

T.C.A.No.863 of 2017 & CMP.No.21429 of 2017 28.08.2020 5/5 http://www.judis.nic.in

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